The following control procedures are used in Kelton Company for over-the-counter cash receipts....

The following control procedures are used in Kelton Company for over-the-counter cash receipts.

1. Each store manager is responsible for interviewing applicants for cashier jobs. They are hired if they seem honest and trustworthy.

2. All over the-counter receipts are registered by three clerks who share a cash register with a single cash drawer.

3. To minimize the risk of robbery, cash in excess of $100 is stored in an unlocked attaché case in the stock room until it is deposited in the bank.

4. At the end of each day the total receipts are counted by the cashier on duty and reconciled to the cash register total.

5. The company accountant makes the bank deposit and then records the day’s receipts.

Intsructions

(a) For each procedure, explain the weakness in internal control and identify the control principle that is violated.

For each weakness, suggest a change in the procedure that will result in good internal control.

Dec 07 2015 01:13 AM

1 Approved Answer

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Subhrata R
answered on February 22, 2016

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1. Cashiers are not bonded and background checks are not conducted. Human resource controls. Cashiers should be bonded and background checks should be performed. 2. All over-the-counter receipts are registered by three clerks who share a cash register with a single cash drawer. Internal control weakness: Lack of appropriate accountability of transactions. Change: A separate cash register for each clerk. Or, if this could be a cost constraint, official receipts should be issued with number ranges that are under the accountability of each clerk. 3.To minimize the risk of robbery, cash in excess of $100 is stored in an unlocked attaché case in the stock room until it is deposited in the bank. Internal control weakness: Assets are not appropriately kept in a safe place. Employees can easily commit robbery. Change: The attache case should be locked with the key under the custody of the accountant. 4. At the end of each day...

he total receipts are counted by the cashier on duty and reconciled to the cash register total. Internal control weakness: Inappropriate segragation of duties. The cashier can manipulate the total receipts count to conceal theft. Change: The accountant should perform the count. 5. The company accountant makes the bank deposit and then records the day’s receipts. Internal Control weakness: The company accountant can also commit theft by not depositing the entire cash. Inappropriate segregation of duties. Change: It should be deposited by the cashier. The accountant will record in the books based on the cash count.

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